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The output effect of stopping inflation when velocity is time varying.

Evans, L. and Nicolae, A. (2007) 'The output effect of stopping inflation when velocity is time varying.', Working Paper. Durham Business School, Durham.


This paper explores the effect of time varying velocity in a transition to price stability. Nonstationary velocity, expressed as function of consumption, is made endogenous in Ireland’s (1997) model. We find that the ‘disinflationary booms’ found by Ball (1994) may or may not disappear; and also that temporary output losses may be much larger than previously thought, depending on velocity. A gradual disinflation of low inflation may even be undesirable given its overall negative impact on the economy. Finally, we explore the optimal speed of disinflation.

Item Type:Monograph (Working Paper)
Keywords:Price stability, Velocity, Disinflation, Output boom, Optimal speed of disinflation.
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Record Created:09 Mar 2009
Last Modified:16 Oct 2013 13:20

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